Senior unsecured debt issued by Deutsche Lufthansa AG rated BBB-, junior subordinated debt rated BB.Rating action

The new instruments rating assigned of BBB- to the EUR 500m senior unsecured bond due in 2019 reflects our senior unsecured debt rating of Deutsche Lufthansa AG. We have likewise assigned our debt instrument rating of BBB- to Lufthansa’s senior unsecured EUR 4.0bn debt issuance program.

Rating rationale

In line with Scope’s corporate ratings methodology, we have assigned a BB instrument rating to Lufthansa’s junior subordinated hybrid bond issued in 2015 (EUR 500m), two notches lower than the issuer rating, reflecting the optional deferability of coupon payments and deep subordination only ahead of common equity.

Rating-change drivers

Positive: Significant deleveraging beyond our base-case, successful reduction of unit costs and structural cost disadvantages, financial credit metrics sustainably below 1.5x (SaD/EBITDA).

Negative: Sudden and unexpected negative changes to discretionary travel (business and leisure), event risks including natural disasters, terrorist activities, and political unrest, intensifying competition by low-cost carriers, deterioration of SaD/EBITDA to levels of about 2.5x.